If you hire a computer programmer as an independent contractor, you must carefully examine 20 factors that the IRS uses to determine whether the programmer is truly a contractor or is really an employee that you're treating as a contractor. The 20 factors fall into three categories, called "common law rules": the amount of control you have over the programmer's behavior, the amount of control you have over the contractor's finances, and the nature of the relationship between the company and the programmer.

Behavioral Control

Independent contractors have much more freedom and flexibility to accomplish a project than employees do. You don't usually provide any training to a programmer who is an independent contractor. You can provide specifications for the solution she creates, but you can't provide over-the-shoulder direction to her or specify that each section of a program has to be created in a certain way. Independent contractors are expected to have their own methods to accomplish solutions. You also can't tell the programmer to come to the office every day or specify certain hours during which she has to work.

Financial Control

An independent contractor usually has an investment in his own equipment and tools. For example, he probably has his own laptop that he uses when programming your project, and has an office from which he works. Providing a computer and an office to a programmer would be more indicative of a relationship with an employee. Contract programmers are also free to bid and work on projects for other clients at the same time they work on your project.

Type of Relationship

An independent contractor usually submits a proposal and quotes a one-time fixed fee, or range of fees, to program a standalone solution. You generally cannot have a contractor work on the same team and perform the same tasks as other programmers who are employees. If you pay a contract programmer by the hour, it suggests that the programmer may be an employee, rather than a contractor. If the contractor works for you for an indefinite period of time, this also indicates that you have an employer-employee relationship.

Ideal Scenario

An ideal scenario for an independent contractor would be a special project that needs to be programmed. You provide specifications, and the programmer quotes a fee. You both sign a written agreement for the project and the programmer works from his office on his own equipment to create the solution. He's not expected to attend regular meetings that you have with the programming staff. He's paid based on creating an acceptable solution, regardless of the number of hours it takes him to create it. His fee includes his own overhead for the cost of doing business, and he may ultimately realize a profit or a loss for the project.

About the Author

Steve McDonnell's experience running businesses and launching companies complements his technical expertise in information, technology and human resources. He earned a degree in computer science from Dartmouth College, served on the WorldatWork editorial board, blogged for the Spotfire Business Intelligence blog and has published books and book chapters for International Human Resource Information Management and Westlaw.